Boards of directors generally comprise highly capable people, well aware of the need for careful judgment processes and who know the potential impact that poor decisions can have on the success of the business, shareholder value, and director liability. Notwithstanding this fact, opportunities for improvement in the judgment processes of directors are available. Corporate governance is enhanced when directors improve their ability to exercise an appropriate level of skepticism and actively engage with management. Companies are better served when directors effectively challenge management’s judgments, explicitly consider alternative perspectives, and engage management in frank and open discussions.
The above excerpt is from the introduction of a new paper from the Committee of Sponsoring Organizations titled, “Enhancing Board Oversight—Avoiding Judgment Traps and Biases.” It is a call for board members to exercise more care when making decisions and to do more prodding of management’s decision-making process.
